What is ESG Reporting | Why It's Important for Your Business
What is ESG Reporting. A company’s social and environmental performance is becoming an increasingly important factor in how potential customers perceive your brand. As a result, companies are coming under increased pressure to consider the impact their activities have on society and the environment before launching new initiatives or services.
In response to this rising awareness, several third-party organizations—known as ‘Corporate Social Responsibility, or CSR, monitors—have emerged with the objective of auditing company practices and guiding how they can improve their social and environmental performance.
These third-party CSR auditors often focus on one particular area related to sustainability (for example, animal welfare or climate change) and will only agree to monitor a company if it meets certain pre-determined conditions. These usually include meeting a set standard for reporting on the organization’s social performance so that continuous improvement can be monitored over time.
What is ESG reporting?
ESG, or ‘Environmental, Social, and Governance, reporting refers to a company’s level of compliance with key regulations in the areas of environmental protection, labor rights, and worker safety. This can also extend to include issues related to corporate governance and supply chain management.
The term ‘reporting’ is used because ESG auditors often expect businesses to produce annual reports that go beyond regulatory compliance and, instead, examine a company’s social and environmental performance in great detail.
Why does your business need to perform ESG reporting?
Companies are increasingly being held accountable for their social and environmental impact. This is reflected in the ever-increasing number of third-party organizations that offer ESG audits. This is a positive step towards improving corporate social responsibility, but it also puts significant strain on businesses by increasing the amount of paperwork required to demonstrate continuous improvement in key areas of sustainability.
Depending on the regulations your business is required to meet and the products or services it provides, you may also need to report on your level of compliance with specific regulations.
Types of ESG reporting
There are many different types of ESG reporting, each of which will have its own set of requirements. The most common types of ESG reporting relate to environmental issues, including energy, carbon, water and waste; and social issues relating to human rights and working conditions.
1- Environmental reporting: Measuring and analyzing your organization’s impact on the environment is the most basic level of ESG reporting. Environmental reporting usually focuses on three key areas:
- Energy: How much energy is used to power your operations?
- Carbon: What is the total amount of CO2 emissions arising from your operations?
- Water and Waste: What is the total amount of water and waste produced by your operations?
2- Social reporting: Assessing the social impact of your operations involves calculating the number of people your business employs and their working conditions. Social reporting is often the most challenging area to audit and the most closely linked to regulatory compliance.
3- Regulatory reporting: Depending on the types of services or products your business provides, you may also be subject to specific reporting requirements.
These are most commonly linked to the sourcing of your materials, the use of certain hazardous substances, or compliance with local labor regulations.
How to ensure your business stays compliant with ESG regulations
The best way to ensure your business remains compliant with ESG regulations is by appointing an internal team responsible for tracking and monitoring compliance. This can be done either by assigning one or two employees to the role or by hiring a third-party consulting firm to manage the process for you.
A third-party consultant specializes in regulatory compliance and will be able to assign a dedicated project manager to your business to streamline internal processes, identify gaps in your compliance, and provide guidance on how to correct any issues that arise.
Compliance assistance is increasingly being offered as part of a broader sustainability consulting package. It is recommended that you select a consulting firm that offers a wide range of services, including assistance with ESG reporting.
Integrating sustainability into your business operations is a never-ending process. This is why your company must have an effective compliance management system in place. This will allow you to track your progress against key sustainability targets, ensuring that any issues that arise are corrected promptly.
The more effort you put into ensuring your business is compliant with ESG regulations, the less effort you will have to put into responding to negative media coverage and complaints from your customers or suppliers.